Which is a stronger growth stock to purchase, Amazon or Netflix?

Two phenomenally successful firms are frequently mentioned in the same breath, whether it's because they're both members of the popular FAANG stock group or because they both offer rapidly rising streaming TV services. These are two long-standing Wall Street darlings: Amazon (AMZN) and Netflix (NFLX).

Both of these companies are still incredibly profitable today, with both their top and bottom lines growing at a quick clip. Indeed, there is still a compelling case to be made for purchasing both firms' stock.

Which of these two growth stocks is a better investment today: Amazon, the e-commerce, cloud computing, and digital services behemoth, or Netflix, the pure-play streaming TV specialist?

Amazon

Amazon has consistently resisted the major growth slowdown that would be expected of a firm of its size. Indeed, revenue growth increased significantly last year. Revenue increased by 20% and 38% in 2019 and 2020, respectively. Without a doubt, the 2020 statistics benefited considerably from increasing e-commerce usage as individuals worldwide sought refuge at home during a pandemic. However, Amazon is growing swiftly even as it faces difficult comparisons in 2020. Net sales in the second quarter of 2021 climbed by 27% year over year.

Profitability has increased even faster. Net income for the trailing twelve months ended June 30, 2020, increased to $29.4 billion from $13.2 billion a year earlier.

And, contrary to popular belief, Amazon stock is not as pricey as it appears. True, its $1.6 trillion market capitalisation is difficult to comprehend. However, with trailing-12-month sales of $443 billion, operational cash flow of $59.3 billion, a rapidly growing top line, and a constantly expanding operating margin, this valuation appears cautious, if not inexpensive.

Netflix

Netflix, the streaming television provider, is boosting its top line similarly swiftly. Second-quarter revenue climbed 19 percent year over year.

However, the true magic for Netflix at the moment is the company's skyrocketing profits. EPS increased to $2.97 in the second quarter, up from $1.59 in the year-ago period. More importantly, experts anticipate that the company's high earnings growth will continue over the next five years, owing to the scalability of its business model. Costs associated with content creation and other expenses are rapidly dropping as a percentage of income.

Analysts predict Netflix's earnings per share will compound at an average annual rate of 43% over the next five years, outpacing Amazon's expected 36% growth. Understanding Netflix's extraordinary earnings potential is critical to justifying the company's 56 price-to-earnings ratio.

The conclusion

Both stocks, in aggregate, appear to be attractive long-term investments. However, Amazon may be the better investment, owing to its sustained top- and bottom-line growth, expansive competitive advantages derived from its powerful flywheel of Prime member incentives, and leadership in both e-commerce and cloud computing.

Amazon's growth trajectory appears to be more sustainable and predictable in the long run, as the company benefits from strong secular tailwinds across multiple facets of its business.

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